An Empirical Analysis of the Cost of Borrowing

Miguel Faria-e-Castro, Samuel Jordan-Wood and Julian Kozlowski

No 2024-016, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We examine borrowing costs for firms using a security-level database with bank loans and corporate bonds issued by U.S. companies. We find significant within-firm dispersion in borrowing rates, even after controlling for security and firm observable characteristics. Obtaining a bank loan is 132 basis points cheaper than issuing a bond, after accounting for observable factors. Changes in borrowing costs have persistent negative impacts on firm-level outcomes, such as investment and borrowing, and these effects vary across sectors. These findings contribute to our understanding of borrowing costs and their implications for corporate policies and performance.

Keywords: credit spreads; bonds; loans; macro-finance (search for similar items in EconPapers)
JEL-codes: E6 G01 H0 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2024-07-15, Revised 2024-07-15
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-fdg
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DOI: 10.20955/wp.2024.016

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